2002 (7) TMI 50 - HC - Income Tax

Order Prejudicial To Interests Of Revenue - 1. Whether, Tribunal was right in law in setting aside the order made by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961? - 2. Whether the conclusion reached by the Appellate Tribunal in setting aside the order made by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, is even otherwise sustainable in law? - it is the finding of fact given by the Tribunal that the assessee has produced relevant material and offered explanations in pursuance of the notices issued under section 142(1) as well as section 143(2) of the Act and after considering the materials and explanation, the Income-tax Officer has come to a definite conclusion. The Commissioner of Income-tax did not agree with the conclusion reached by the Income-tax Officer. Section 263 of the Act does not empower him to take action on these facts to arrive at the conclusion that the order passed by the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue. Since the material was there on record and the said material was considered by the Income-tax Officer and a particular view was taken, the mere fact that a different view can be taken, should not be the basis for an action under section 263 of the Act and it cannot be held to be justified.

Summary

Issues:
1. Setting aside of the order made by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961.
2. The sustainability of the conclusion reached by the Appellate Tribunal in setting aside the said order.

Analysis:

Issue 1: Setting aside of the order by the Commissioner of Income-tax under section 263:
The case involved a partnership firm that disclosed a net loss in its income tax return. The Income-tax Officer conducted an assessment and determined the total income. Subsequently, the Commissioner of Income-tax found the assessment order erroneous and prejudicial to Revenue's interests due to unaccounted cash and seized assets during a search. The Commissioner set aside the order under section 263, directing a fresh assessment with necessary investigations. The Tribunal, after detailed consideration, found that the Income-tax Officer had properly investigated the case, raised relevant enquiries, and was aware of the gravity of the situation. The Tribunal concluded that the Commissioner was not justified in initiating proceedings under section 263. The Tribunal set aside the Commissioner's order, which was challenged in the reference.

Issue 2: Sustainability of the conclusion by the Appellate Tribunal:
The Revenue contended that the assessment order was erroneous and prejudicial to its interests as the Income-tax Officer did not conduct a full enquiry. The respondent-assessee argued citing the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT that section 263 cannot correct every mistake by the Assessing Officer and must involve an erroneous order prejudicial to Revenue's interests. The Supreme Court's ruling clarified that loss of revenue due to a lawful course taken by the Income-tax Officer does not make the order prejudicial. In the present case, the Tribunal found that the Income-tax Officer had considered relevant material and explanations before reaching a conclusion. As the material was on record and a particular view was taken after due consideration, the mere possibility of an alternative view did not justify action under section 263.

In conclusion, the High Court upheld the Tribunal's decision, ruling in favor of the assessee and against the Revenue. The Court emphasized following the principles set in the Malabar Industrial Co. Ltd. case, where only erroneous orders prejudicial to Revenue's interests warrant action under section 263. The reference was disposed of with no costs.

This detailed analysis outlines the issues of setting aside the Commissioner's order under section 263 and the sustainability of the Appellate Tribunal's conclusion, providing a comprehensive understanding of the legal judgment.